[2024] KETAT 1651 (KLR)

Ndang Suppliers v Commissioner of Domestic Taxes (Tax Appeal E757 of 2023) [2024] KETAT 1651 (KLR) (21 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1651 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E757 of 2023

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

November 21, 2024

Between

Ndang Suppliers

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited liability company incorporated in Kenya carrying on the business of selling construction materials for buildings.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondents issued VAT assessment orders dated the 15th November 2019, 21st December 2021, 26th August 2022 under assessment numbers KRA2019156XXXX, KRA202122XXXX, KRA2021227XXXX, and KRA202215XXXX amounting to Kshs 28,474,295. 73.

4. The Appellant objected to the said assessments on the 17th October 2023 this being outside and beyond the required statutory limit of 30 days. On 30th October 2023, the Respondent denied the Appellant leave to file notice of objection out of time.

5. Aggrieved by the Respondent’s decision, the Appellant sought refuge in this Tribunal by filing this appeal vide a notice of appeal dated and filed on 1st November 2023.

The Appeal 6. The appeal is founded on the memorandum of appeal dated and filed on 1st November 2023 wherein the Appellant raised the following grounds of Appeal:a.That the Respondent erred in imposing VAT of Kshs. 28,474,296 without taking into account the documentary evidence before him/her.b.That the Respondent erred in law and in fact by imposing VAT of Kshs. 28,474,296. 00 which was in the excessive and unsupported by the sales and/or any documentary evidence.c.That the Respondent erred in law and in fact by failing to rely on the documentary evidence provided.d.That the Respondent erred in law and in fact failing to rely on evidentiary documents provided and which demonstrated that the self-assessment was undertakene.That the VAT as assessed in excessive, punitive and unjustified.

Appellant’s Case 7. The Appellant stated that the Respondent, station manager of Nairobi area occasioned the raising of additional tax under VAT Act for the year 2017, 2018 and issued a confirmation notice, of the estimated assessment dated 21st December 2021.

8. According to the Appellant, the Respondent rejected the Appellant’s objection on 21 December 2021 without due regard for natural justice and against the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “the VAT Act”). It argued that the said Respondent’s decisions of aggrieved the taxpayer therefore, appeal to the Tribunal to facilitate parties to attempt ADR process to settle the matter.

9. The Appellant stated that it opted to appeal the decision to facilitate amendment of the estimated tax.

10. The Appellant added that it has disputed the estimated tax and has made application to the tax Tribunal to have the matter arbitrated by the ADR Committee, to ensure there is equity for both parties.

11. The Appellant asserted it attached all the necessary documentary evidence in support of the Appellant prayer and proof that the estimated tax confirmed is excessive, punitive and unreasonable and was determined using incomplete records and assumptions.

12. The Appellant appealed against the Respondent’s decision as contained in the additional assessment, together with his notice to confirm the additional tax, regardless of whether sufficient ground was given or not.

13. The Appellant failed to file written submission even after being granted leeway to do so.

Appellant’s Prayers 14. The Appellant prayed for the following reliefs:i.That the appeal herein be allowed and the Appellant be allowed to file amended returns for 2017 and 2018 if any.ii.That the assessment adopted be lifted and Appellant's tax ledger be cleared off the tax assessed.iii.That the Respondent be stopped from enforcing payments of VAT tax for 2017 and 2018. iv.That the arising penalties imposed on the Appellant be waived.v.That the Appellant be exempted from paying incremental tax imposed during the year 2017 and 2018.

Respondent’s Case 15. In opposition to the Appeal, the Respondent filed its Statement of facts dated and filed on 24th November 2023. The Respondent also filed its written submissions dated and filed on 16th July 2024 and the same were adopted by the Tribunal on 11th September, 2024.

16. In response to ground (a) of the Memorandum of Appeal, the Respondent averred that the Appellant was issued with assessments in strict compliance to the VAT Act and no documentary evidence has ever been provided by the Appellant to disprove the same.

17. In response to ground (b) the Respondent averred that it properly imposed the assessments on the Appellant based on the information available to it.

18. In response to ground (c) of the Memorandum of Appeal, the Respondent averred that the Appellant has never provided evidence to prove that the assessments were wrong.

19. The Respondent averred in response to ground d of the Memorandum of Appeal that no documents disproving the assessments has ever been presented as there has been no validly lodged objection as required under the law by the Appellant.

20. In response to ground e of the Memorandum of Appeal the Respondent averred that the VAT assessments were proper and correctly raised on the Appellant.

21. The Respondent averred that the Appellant's Appeal is premature and invalid as it filed contrary to the provisions of Section 51(1) of the TPA which requires a Taxpayer challenging a tax decision to first lodge an objection against that tax decision before proceeding under any other written law.

22. The Respondent further averred that no objection decision was issued as the Appellant's late objection was rejected as the same did not meet the grounds set out to extent time in which to lodge a late objection.

23. The Respondent also asserted that the Appellant’s appeal cannot be determined on the merits by the Tribunal as no objection decision has been made by the Respondent to qualify as an appealable decision.

24. The Respondent averred that the Appellant filed its objection two (2) years late and that the delay was unreasonable and that no reason had been provide to warrant the Respondent to allow the late objection. The Respondent maintained that the assessment as issued remains due and payable and the matter was deemed closed upon the expiry of the statutory timelines and the extension of time to file an objection out of time was discretionary and the Respondent exercised this power reasonably.

25. The Respondent further averred that the rejection of the late objection was proper and in conformity with Section 51(7) of the TPA.

26. The Respondent submitted that the appeal before is incompetent as the same fails to comply with the provisions of the TPA as the same is not an appealable decision considering that it had not issued an objection decision with regards to the Appellant's objection.

27. The Respondent relied on Section 52(1) of the TPA which provides as follows:‘‘a person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 4o of 2013) (TATA).’’

28. The Respondent relied on Section 3(1) of the TPA which provides as follows:“Appealable decision" means an objection decision and any other decision made under a tax law other than-(a)A tax decision; or(b)A decision made in the course of making a tax decision.’’

29. The Respondent relied on the case of Commissioner of Investigations & Enforcement v Vyas t/a Rocon Enterprises (Income Tax Appeal E144 of 2021) [2022] KEHC16027(KLR) wherein the High Court held that the Tribunal lacks the jurisdiction to entertain an appeal on the decision of the Commissioner rejecting an application for extension of time.

30. The Respondent relied on the case Speaker of the National Assembly v James Njenga Karume (1992) eKLR where the Court of Appeal held as follows:“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or any Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures."

31. The Respondent also cited the case of Geoffrey Muthinja Kabiru & another v Samuel Munga Henry & 1756 others where the Court of Appeal stated as follows:“It is imperative that where a dispute resolution mechanism exists outside courts, the same be exhausted before the jurisdiction of the courts is invoked. Courts ought to be fora of last resort and not the first port of call the moment a storm brews. The exhaustion doctrine is a sound one and serves the purpose of ensuring that there is a postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his own interest within the mechanisms in place for resolution outside the courts. This accords with article 159 of the Constitution which commands courts to encourage alternative means of dispute resolution.’’

32. Finally, the Respondent submitted that the Appellant failed to discharge its burden of proof. The Respondent relied on the case of Tumaini Distributors Company (K) Limited Vs Commissioner of Domestic Taxes (2020) eKLR where the court while dealing with the burden of proof in taxation matters held as follows:“The taxpayer has the burden to prove that a tax decision is wrong."

Respondent’s prayers 33. The Respondent urged the Tribunal to uphold its tax assessments but dismiss this Appeal as the Tribunal is bereft of jurisdiction to determine the matter.

Issues for Determination 34. The Tribunal having considered the parties’ pleadings, documentation and Respondent’s submissions, puts forth one issue for determination namely:Whether the Tribunal has jurisdiction to hear and determine this appeal.

Analysis and Findings 35. The Tribunal having identified the issue falling for its determination proceeds to analyse the same as hereunder.

Whether the Tribunal has jurisdiction to hear and determine this appeal. 36. The issue herein is whether the Tribunal has jurisdiction to hear and determine this Appeal. This Tribunal is cognisant of the importance of its jurisdiction following the holding by Nyarangi J in the case of Owners of Motor Vessel “Lilian S” V Caltex Oil (K) Limited (1989) eKLR that ‘jurisdiction is everything and that without it, a court must down its tools’.

37. The Respondent issued VAT assessment orders dated the 15th November 2019, 21st December 2021, and 26th August 2022. The Appellant objected to the said assessments on the 17th October 2023 this being outside and beyond the required statutory limit of 30 days. On 30th October 2023, the Respondent denied the Appellant leave to file notice of objection out of time. Consequently, the Respondent did not issue objection decision.

38. Section 51(1) of the TPA provides as follows:‘‘A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.’’[emphasis ours]

39. The Tribunal’s view is that Section 51(1) of the TPA prohibits a taxpayer from relying on the mechanism of filing an Appeal under the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) if a taxpayer has not objected to an assessment(s).

40. The Tribunal notes that a taxpayer must first object to an assessment within the required timelines pursuant to the following provisions of Section 51(2) of the TPA:‘‘(2) A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.’’

41. The law anticipates a scenario where a taxpayer may delay to file objection against the assessments. To this end, the law provides a remedy pursuant to the provisions of Section 51(6) of TPA:‘‘A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.’’

42. The Tribunal’s view is that a taxpayer must satisfy the Respondent on why it delayed filing an objection to an assessment(s). Pursuant to section 51(7) of the TPA, the Respondent has discretion to allow or reject such an application AND in a situation where a taxpayer holds the view that the Respondent has misused its discretion, a taxpayer has a right to seek judicial review remedy from a court of competent jurisdiction. The Tribunal does not have jurisdiction to issue judicial review orders.

43. The High Court in the case Commissioner of Investigations & Enforcement v Vyas t/a Rocon Enterprises (Income Tax Appeal E144 of 2021) [2022] KEHC 16027 (KLR) stated that the Tribunal does not have jurisdiction to entertain decisions under section 51(7) of the TPA for the reason that the decision is not an appealable decision. The High Court also noted that such decisions are subject to judicial review proceedings not an Appeal at the Tribunal. The Appellant in the instant case ought to have considered have considered a Judicial Review against the decision of the Respondent to disallow late filing of its objection decision rather than file an Appeal at the Tribunal.

44. Consequently, the Tribunal finds and holds that the Tribunal does not have jurisdiction to hear and determine this Appeal and the same is available for striking out.

Final Decision 45. The upshot of the foregoing is that the Appeal fails and the Tribunal proceeds to make the following Orders:(a)The Appeal be and is hereby struck out.(b)Each party to bear its own cost.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF NOVEMBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER